Since 2010, the federal government and many provinces have increased the tax rate on top income earners. This question asks you to think about

whether these policies were a good idea. In a 2015 paper titled “Taxation and Top Incomes in Canada”, Kevin Milligan and Michael Smart estimated

that the elasticity of taxable income (ETI) for the top one percent of income earnings in Canada is  z = 0.68.

(a) The income cutoff to be in the top one percent in Nova Scotia is $154,588 (or $154.588

thousand dollars) and the average taxable income reported by individual tax filers in the

top one percent is $273,712 (or $273.712 thousand dollars). In 2015, 7,240 individual

tax filers were in the top one percent in Nova Scotia. Suppose that the province is

interested in increasing its top marginal rate from τ to τ + Δτ , where Δτ is a small

positive number. What is the Mechanical effect of this tax reform (i.e. calculate M)? 

(b) The current top marginal tax rate in Nova Scotia (federal + provincial) is 49.4%.

Using the ETI estimate provided, what is the Behavioral effect of this tax reform (i.e.

calculate B)?

1

(c) Using the value for  z provided, calculate the mechanical effect M, the behavioural

effect B and the total revenue effect of the tax reform (i.e. M+B) in the following table.

To reduce clutter, please report your answers for M, B and M +B in millions of dollars

(i.e. 000,000s).

d) How many provinces experience an increase in tax revenue because of this reform? In 3-5 sentences, describe some of the similarities among provinces that experience an increase in tax revenue?

 

Transcribed Image Text:

Province Newfoundland z($000s) 283.720 203.948 273.712 248.546 147.010 326.472 169.949 477.951 215.316 300.529 161.098 344.253 180.420 Alberta 648.475 281.096 British Columbia 406.730 190.151 PEI Nova Scotia New Brunswick 2* ($000s) Tax Filers 168.094 Quebec Ontario Manitoba Saskatchewan 139.722 154.588. 4,170 1,120 7,240 5,970 62,510 98,060 9,140 7,850 27,530 34,190 Current T 0.430 0.469 0.494 0.428 0.477 0.463 0.460 0.435 0.390 0.431 M ($ millions) B ($ millions) M+B ($ millions) Province Newfoundland z($000s) 283.720 203.948 273.712 248.546 147.010 326.472 169.949 477.951 215.316 300.529 161.098 344.253 180.420 Alberta 648.475 281.096 British Columbia 406.730 190.151 PEI Nova Scotia New Brunswick 2* ($000s) Tax Filers 168.094 Quebec Ontario Manitoba Saskatchewan 139.722 154.588. 4,170 1,120 7,240 5,970 62,510 98,060 9,140 7,850 27,530 34,190 Current T 0.430 0.469 0.494 0.428 0.477 0.463 0.460 0.435 0.390 0.431 M ($ millions) B ($ millions) M+B ($ millions)

Answer rating: 100% (QA)

Since 2010federal gvt have Increased tax a What is the mechanical ette ad of this tax refo... View the full answer